Dealing with late payments is one of the most challenging and stressful aspects of being a small business owner. According to Barclays bank, nearly 58% of small businesses are currently waiting for invoices to be paid. An unpaid invoice can lead to poor cash flow, which in turn can affect other areas of your business, such as managing inventory, paying employees, and meeting other financial obligations.

If you've served a client but haven't been paid as agreed, there are a few steps you can take to resolve the situation and get the payment you're owed. It's also worth taking the time to think about how you can prevent it from happening again.

How to avoid unpaid invoices

No one wants to have to resort to debt collection. Going the route of litigation can be time-consuming and costly, so avoiding this outcome is better for all parties. By following proper protocol when having conversations about payment, you can prevent yourself from having to chase up debts.

Here are some steps to take to avoid an unpaid invoice:

Talk about payment terms right awayWhen having a conversation with a customer about a project, be clear about what you want and how you want to be paid. It can also be worth letting customers know your stance on late invoices.

Make sure your invoice is up-to-dateBefore submitting your invoice, double-check that all information is correct and up-to-date. Giving the wrong information can cause issues with payment, so doing this can save you a lot of hassle.

Document everythingKeep a written record of the date your invoice is due, as well as the date the invoice was issued. This makes recalling information much easier if you need to refer back to it at a later date. You should also keep track of all email and phone correspondence you have with your customer, plus dates and times.

Unpaid invoice recovery

Sometimes preventing an unpaid invoice can be out of your control. In this case, it's important to have a plan in place for what you're going to do if and when an invoice goes unpaid:

Write a payment request letter or email for the outstanding invoiceThis should be your first step, as it begins the formal process of requesting payment. When writing an unpaid invoice letter, make sure to include the amount outstanding, the date the payment was due, your contact information, and a polite reminder that interest may be added if the payment is not made soon.

Send an overdue invoiceIf your payment request letter goes unanswered, sending an overdue invoice is your next step. This document should include again the amount outstanding, the date the payment was originally due, your contact information, and a late payment fee.

Deliver a statement of accountsIf the first two steps are ignored, your final step is to deliver a statement of account. This document will include all unpaid invoices, the total amount outstanding, the date payment was due, contact details, and any late payment fees incurred.Call them

If you have the phone number of a decision-maker, you can attempt to call them and ask for payment. Making a call can help personalise the situation and may prompt them to take action.

Stop providing your product or services until outstanding invoices are paidIf you continue to provide your product or services without being paid, you are essentially giving away your work for free. Stop providing your product or service until the invoice has been paid.

Hire a debt collector to collect payment on your behalfIf you have exhausted all of the above options and still have not received payment, it may be time to try unpaid invoice recovery. This entails hiring a debt collector - debt collectors are professionals that specialise in getting people to pay debts they owe.

Take legal actionIf all other attempts to collect payment have failed, you may need to take unpaid invoice legal action. This should be a last resort as it can be expensive and time-consuming. You can either take the person to small claims court or hire a solicitor to begin legal proceedings. Depending on which of these options you go with, you'll have to follow certain steps:

Small claims court - This involves filing a claim and then appearing in court on the assigned date. The court will then decide if the person owes you money and, if so, how much.

Hire a solicitor - If you choose to hire a solicitor, they will send a letter of demand to the person who owes you money. If this doesn't get results, they may take further legal action, which can be expensive.

How iwocaPay can help

At iwoca, we understand that late payments can be a real problem for small businesses. That's why we created iwocaPay.

iwocaPay lets businesses offer no-risk finance to customers that find it difficult to pay all at once. Not only will your customer benefit from flexible payment terms, but you'll also get paid in full immediately. And if they do decide to pay all at once, our safe and secure Pay Now system allows them to send money instantly - even without their card.

With iwocaPay, doing business is fast and effective. Get paid on your terms, everytime.

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